Budget 2025 needs to boost infrastructure spending for GDP growth

As the Union Budget 2025 approaches, leading experts are calling for a significant increase in infrastructure spending to catalyse India’s economic growth. The government is urged to go for an 30% annual rise in infrastructure allocations, with demands for the upcoming budget to push capital expenditure to ₹18 lakh crore from last year’s ₹11.1 lakh crore base.

Annual increase in capital expenditure is crucial to reversing GDP slowdown and achieving the nation’s ambitious economic goals. A robust budget allocation and proactive private-sector participation will be pivotal in ensuring sustainable and inclusive growth.

Budget 2025 fix for slowing capex impacting growth

Vinayak Chatterjee, Founder & Managing Trustee of The Infravision Foundation, told ET Now there are adverse effects of reduced capital expenditure on GDP growth. He noted that while prior budgets maintained a 30% annual increase in infrastructure allocations, the FY25 budget broke this trajectory with a mere 10% rise. This deceleration, coupled with a slowdown in actual government spending, has contributed to GDP underperformance.

Chatterjee cited research by former RBI Governor Dr. C. Rangarajan, which linked subdued public expenditure in infrastructure to slower economic growth. One rupee spent on infrastructure generates three rupees in GDP, whereas expenditure on items like direct benefit transfers (DBT) yields only a 90-paisa return, he said.

Strong case for infrastructure investment in Budget 2025

To address the current economic challenges and maintain robust GDP growth, experts believe it is critical for the government to prioritise infrastructure spending. Chatterjee said that increased allocations are not just fiscal strategies but economic imperatives. He pointed out the cumulative loss to GDP caused by the reduced spending, estimating that the decline in infrastructure outlay led to a six-point loss in GDP growth.

According to Knight Frank India’s report, India requires $2.2 trillion in infrastructure investment to achieve its target of becoming a $7 trillion economy by 2030. This ambitious goal demands a compound annual growth rate (CAGR) of 10.1% between 2024 and 2030, underscoring the need for aggressive fiscal measures.While government spending is vital, private sector involvement is equally crucial for scaling infrastructure development. Chatterjee advocated for creating investor-friendly public-private partnership (PPP) models in core sectors like health, education, and agriculture. He also pointed to opportunities in renewable energy, ports, airports, and transmission infrastructure, areas with significant private sector interest.Knight Frank India CMD Shishir Baijal echoed these sentiments, stressing the need for policy innovations to attract private investments. While recent policy pushes have improved India’s global logistics ranking, Baijal emphasised that structural bottlenecks still deter private participation. Radical reforms are needed to balance fiscal prudence with sustainable, inclusive growth.

Budget 2025: The path forward

The consensus among industry leaders and economists is clear: an aggressive increase in infrastructure budgetary allocation is necessary to unlock economic potential and meet long-term growth targets. Experts argue that returning to a 30% annual rise in infrastructure outlay will not only stimulate GDP growth but also strengthen India’s global economic standing.

With just months left in the fiscal year and the Union Budget looming, the government faces mounting pressure to demonstrate its commitment to infrastructure as a growth catalyst. Whether it heeds this call will significantly influence India’s trajectory towards its $7 trillion economy ambition.